What Is Whole Life Insurance?
If you prefer low-risk options and desire lifelong coverage with guaranteed premiums, death benefits, and cash value growth, whole life insurance may be the perfect fit for you. This type of permanent life insurance ensures you’re covered for the entirety of your life.
Life insurance has been around for a long time, and whole life insurance is one of the earliest types. It used to be the most popular form of life insurance in the United States and is still quite popular today. In fact, according to LIMRA, a research group funded by the industry, it accounts for 33% of all life insurance premiums.
So, how does whole life insurance work?
Essentially, you pay the premiums for the rest of your life, and the policy remains in effect as long as you do. Before you sign up for a policy, it’s essential to understand the cash value, living benefits, death benefits, and dividends that come with it.
One key feature of whole life insurance is the cash value account. Whenever you make a premium payment, a portion of it is put into this account, while the rest goes towards paying internal expenses. The cash value grows tax-deferred, but the return is typically low compared to other types of permanent life insurance. The cash value can take a while to exceed what you’ve paid in premiums. You can access the cash value by withdrawing or taking out a loan, but this will reduce your beneficiaries’ death benefit.
Whole life insurance also offers living benefits, allowing you to access your death benefit while alive under certain circumstances. For example, you can access the money if you have a chronic or terminal illness. It’s essential to ask your insurance agent about the specific living benefits available before purchasing a policy.
What are whole life insurance death benefits?
When you purchase a whole life insurance policy, you must name a beneficiary (or multiple beneficiaries) who will receive the death benefit payout when you pass away. Calling a contingent beneficiary who will receive the payout if your primary beneficiary has already passed away is also essential.
It is crucial to note that whole life insurance guarantees a death benefit amount (the policy’s face value). However, this amount does not include the policy’s cash value, regardless of how much you have accumulated. Some policies offer a rider that adds the cash value to the face value for the death benefit but expects to pay an additional cost for this feature.
Best whole life insurance policies of 2023
Guardian Life
Guardian Life offers whole-life coverage with level premiums or a “limited payment” policy that lets you pay off your policy in 10, 15, or 20 years. You can choose additional riders, including a disability waiver of premium, long-term care, and an index participation feature (IPF) rider. The IPF rider links a portion of your cash value to the performance of the S&P 500 Price Return Index, and any profits are paid out in dividends. Guardian also provides life insurance for people living with HIV under a specialist’s care and successfully receiving antiretroviral therapy. They have paid out dividends to permanent policyholders yearly since 1868, with the highest payout of $1.26 billion set for 2023.
MassMutual
MassMutual allows policyholders to customize coverage with various riders, such as a long-term care rider, a chronic illness rider, and a yearly term purchase rider that directs dividend payments toward a term life insurance policy. Permanent policyholders receive dividends based on the insurer’s profits, with an estimated payout of almost $1.9 billion in 2023.
Northwestern Mutual
Northwestern Mutual’s whole life insurance policy offers flexible payment options, with the choice of paying premiums for 15, 20, or 25 years or until age 65 or 100. You can add riders to enhance your coverage, such as an accelerated death benefit that pays out a portion of your payout if you need long-term care. Northwestern Mutual is a mutual company and one of the largest individual life insurers in the U.S., set to pay out $6.8 billion in dividends in 2023.
New York Life
New York Life’s custom whole-life policy provides flexibility with premium payments, allowing you to pay off your policy in as little as five years or schedule the timing and amount of your expenses. The insurer offers riders such as a chronic care rider, waiver of premium rider, and accelerated death benefit. As a mutual company, New York Life is set to pay out $2 billion in dividends to its policyholders in 2023.
State Farm
State Farm’s standard whole-life policy has level premiums, which means you’ll pay the same amount each month. But if you’d like to adjust when and how much you pay, you can buy a single premium or limited payment policy.
If you’re healthy, aged 18 to 50, and applying for a policy worth $100,000 to $1 million, State Farm might fast-track your application and issue your policy without needing a medical exam. If you want to cover your funeral, burial, and end-of-life expenses, the insurer offers a final expense policy to applicants ages 50 to 80 (50 to 75 in New York). Policy features aside, State Farm leads J.D. Power’s list of life insurers with the best customer satisfaction.
Alternatives to Whole Life Insurance
Whole life insurance is only the right life insurance for some situations. In some cases, other types of life insurance might be a better choice.
Universal life insurance
This type of policy offers flexible premiums, death benefit amounts, and the ability to accumulate cash value over time. It’s a good option if you want lifetime coverage.
Indexed universal life insurance
With this type of policy, your cash value is connected to an index like the S&P 500. This means the policy’s value will fluctuate based on the index’s performance. Policyholders can often adjust their death benefits and premiums as well.
Being a type of universal life policy, policyholders with an indexed universal policy can often change death benefits and premium payments, too.
Variable life and variable universal insurance
These policies require you to choose investment options for your cash value and monitor how they perform. Whole life insurance doesn’t offer this level of investment control.
Term life insurance
This is often the cheapest type of life insurance, but it only provides coverage for a specific period of time (such as 5, 10, 15, 20, or 30 years). After that, rates increase if you renew. This type of policy can be a good choice if you need coverage for a specific period, like until your mortgage is paid off or your children finish college. It doesn’t include a cash value component.
Keep in mind that every person’s situation is different, so it’s important to speak with a financial advisor or insurance agent to determine which type of life insurance is right for you.
